Invoice Financing vs. Invoice Factoring: Who Collects, Who Is Told, and What Changes
Cash against unpaid B2B invoices while you keep collecting them. The invoice is not sold.
Soft credit pull only, no obligation
Rates, factor rates, fees and terms are set by the funding provider that makes your offer and are disclosed in that provider's agreement. Figures on this page are illustrative ranges from providers in our network, not offers. Invoice financing is priced with a fee on an invoice, not a rate on a balance.
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At a glance
| Amount available | Follows your eligible receivables, depending on the funding provider |
|---|---|
| Advance rate | Commonly 70–90% of each eligible invoice, depending on the funding provider |
| Structure | An advance against invoices that stay on your books. Factoring sells or assigns them instead |
| Speed | Slower to open than a single decision, as your customers are verified first; subject to provider approval and document turnaround |
| Collateral | Your receivables, with a UCC lien on them |
| Cost expressed as | A fee on each invoice, plus facility and audit charges |
| Also called | Invoice discounting or confidential factoring |
|---|---|
| Who collects | You. Under factoring, the factoring company |
| Notice of assignment | Usually none, though a UCC lien on your receivables is filed either way |
| An invoice never paid | Comes back to you. Under factoring, recourse or non-recourse, per the agreement |
No fee is quoted here: no network figure fits every file.
What is invoice financing?
Definition
Invoice financing is an advance against invoices that stay yours. You keep collecting, and the facility clears out of what your customers pay you.
Advance rate, reserve, fee and lien work as in invoice factoring; what changes is who owns and collects the invoice.
Who owns the invoice?
You do. Under invoice financing the invoice is pledged as security, not sold.
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Under factoring the invoice changes hands. Here the provider takes security over your receivables, and the invoice stays on your books.
Who does your customer pay?
You do. You collect, and your customer pays you, as it always has.
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The money lands in an account the provider can see and clears the advance. Under factoring, your customer is told to pay the factoring company.
Is it confidential?
From your customer, usually yes. From everyone else, no.
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No letter goes to your customer, but a UCC lien on your receivables is a public filing under UCC Article 9; see what a blanket lien is.
How much you can get
No fixed limit: the amount follows your eligible receivables and the advance rate above, depending on the funding provider.
The amount available follows
- Your eligible invoices
- Your customers' credit
- Spread across customers
- How you collect
What invoice financing asks on top
Reporting you keep up
What you collected, and when.
An audit of your ledger
Before opening, and from time to time.
An earlier lien on your receivables must be released first.
Two habits that keep a facility open
Reconcile your aging report every month.
Bank every payment into the monitored account.
Decisions from some providers the same day, depending on the provider.
Subject to provider approval and document turnaround.
How the cost of invoice financing is expressed
Providers in our network typically charge a fee per invoice, disclosed in the agreement. Confidentiality adds charges of its own.
A fee on each invoice
Charged per period the invoice stays open.
Follows your customers' creditThe cost of confidentiality
The provider prices in the checks on your collections.
Paid for discretion
Agreements commonly add, depending on the funding provider
- Facility or service fee
- Audit and reporting charges
- Monthly minimum
- Termination charge
Each one belongs in the fee schedule.
Neither is cheaper across the board. Compare the all-in cost of a typical invoice of yours, and the cost to leave.
See what an offer statesThe same invoice, under each structure
| Stage | Under factoring | Under invoice financing |
|---|---|---|
| You issue a $100,000 invoice | A notice of assignment goes to your customer | Nothing goes to your customer |
| $80,000 is advanced at 80% | By the factoring company | By the provider |
| Your customer pays | The factoring company, direct | You, into the account the provider monitors |
| $20,000 is held as a reserve | By the factoring company | By the provider |
| A $3,000 fee is taken | From the reserve | From the reserve, or charged to the facility |
| $17,000 comes back to you | The reserve is released | The advance clears and your availability returns |
$97,000 reaches you either way, before facility charges. Illustrative example, not an offer.
How to apply for invoice financing
We check your options with a soft credit pull only, so looking does not change your score.
What you'll send
- three months of bank statementsfour in CA, NY, FL and GA with some providers
- A government ID
- An accounts-receivable aging report
- Sample invoices
Before a facility opens, the provider also
- Checks each customer's credit
- Reviews how you collect
Worth asking before you sign
Is a notice ever sent to my customers? What does it cost to leave?
Apply once
about 5 minutesOne file reaches the providers in our network that fit your receivables.
Say which structure you want
Say whether a notice to customers is acceptable.
Review the file
A funding specialist reads your ledger and says plainly which structure fits.
A facility takes longer than a single decision: your customers are verified first.
Compare the offers and sign
You sign with the provider you choose. Each offer states:
- Advance rate
- Fee schedule
- Reserve
- Who collects
- Any notice
- Notice period
When invoice financing fits, and when factoring does
You pay for discretion and keep collecting.
| Ask yourself | Invoice financing | Factoring instead |
|---|---|---|
| Would a notice worry your customers? |
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| Is your file thinner than your customers'? |
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Would a notice worry your customers?
- Owner-managed clients who would read one as trouble.
- Large buyers and agencies, used to notices.
Is your file thinner than your customers'?
- An established book spread across several solid customers.
Better fit elsewhere
- A recurring, modest gapUse insteadBusiness line of creditwhich your customers never see
- A gap that is not about invoicesUse insteadWorking capital financingthe short-term options side by side
Fees are set by the provider and stated in its agreement.
Invoice financing and the options next to it
The advance, reserve and fee work alike across these pages; what changes is who owns the invoice and who collects it.
- Invoice factoring overview
The invoice is sold or assigned, the factoring company collects, and your customer is notified where to pay.
- Accounts receivable financing
The broader term, including revolving facilities against your whole receivables ledger.
By industry, see invoice factoring for trucking and logistics companies.
Related financing
- business line of credit
Standby capital you draw only when you need it, then draw again.
- working capital financing
Cash for payroll, stock and the gaps between deposits and bills.
Invoice financing questions
In short
Invoice financing turns unpaid business-to-business invoices into cash while you keep collecting them. A provider advances part of each eligible invoice, commonly 70–90%, depending on the funding provider, for a fee on each invoice. Unlike invoice factoring, the invoice is not sold: your customer is not notified and keeps paying you.
What is the difference between invoice financing and invoice factoring?
Ownership and collection. In factoring you sell or assign the invoice, the factoring company collects it, and your customer is notified where to pay. In invoice financing the invoice stays yours as security, you collect it yourself, and your customer keeps paying you. Advance rates, fees and reserves work the same way in both, and are stated in the agreement.
Is invoice financing a loan?
Factoring is not: an invoice is sold, nothing is borrowed, and no interest is charged. Invoice financing sits closer to secured credit, because the invoice stays on your books and the provider takes security over it. What you are actually being offered is in the documents, so read whether the paperwork is a factoring agreement or a credit agreement before you sign.
Is invoice financing confidential?
Usually, in the sense that matters to your customer: no notice of assignment is sent, the invoice carries your details, and your customer pays you. It is not invisible, though. A UCC lien on your accounts receivable is a public filing under either structure, so a bank or another funder running a search will see the facility.
What is a notice of assignment?
A formal letter from the factoring company to your customer saying the invoice has been assigned and must now be paid to the factoring company instead of to you. It is standard in factoring and is what makes the arrangement disclosed. Large buyers and public agencies process these routinely; smaller customers sometimes read one as a sign of trouble.
Which costs more, invoice financing or factoring?
Neither answer holds across the board, because both are priced on the same four things: your customer's credit, invoice size, monthly volume, and who carries an invoice that is never paid. Confidentiality is not free either, so invoice financing commonly adds facility, audit and reporting charges. Compare the all-in cost of one of your own invoices, not the headline fee.
Which is easier to qualify for?
Factoring, for most businesses. The factoring company does the collecting, so it relies on its own process rather than yours. Invoice financing leaves collection with you, which means the provider is underwriting your systems as well as your customers: it looks for clean invoicing, few credit notes, reliable reporting and a ledger spread across several customers.
Can I switch from factoring to invoice financing later?
Often, yes, and businesses commonly do as their ledger and their reporting improve. Two things decide the timing: the notice period and any termination charge in your current factoring agreement, and whether the new provider can get the existing UCC lien on your receivables released or subordinated. Check both before you commit to a facility you expect to outgrow.
Still have a question?
talk to a funding advisorUnlock the cash in your unpaid invoices: see which invoice financing offers fit your business.
about 5 minutes, soft credit pull only · talk to a funding advisor